CARES Act Expands Tax Deductions for Charitable Giving

New Giving Opportunity for Non-Itemizers

If you do not itemize deductions, you may nonetheless take an "above-the-line" deduction for up to $300 in cash gifts you make to Mother Jones.

Only contributions actually made during 2020 qualify. In other words, any excess cash contributions carried over from prior years are not eligible for this one-time, "above-the-line" deduction.

Although we do not yet have formal guidance from IRS, it appears a married couple filing jointly may deduct up to $600 “above the line,” if each makes cash gifts of at least $300.

"Unlimited" Deduction for Cash Gifts

If you do itemize, you may deduct up to the entire amount of your adjusted gross income (AGI) for cash gifts you make in 2020, without reference to the 60 percent limitation that would otherwise apply.

If you also make noncash gifts, which are subject to lower AGI limitations, or if you have carryforwards from noncash gifts made in prior years, you can still take advantage of the temporary "unlimited" deduction for cash gifts, without losing a carryforward year for those items. Excess cash gifts will simply be carried forward to 2021.

The limitation on deductions for cash contributions by corporations has also been temporarily increased, from 10 percent of taxable income to 25 percent.

Relief from the Minimum Distribution Requirement

Required minimum distributions (RMDs) from IRAs and other "defined contribution" retirement plans have been waived for 2020. If you are age 72 or older, this gives you more flexibility in taking distributions. Given the extreme volatility of the markets during the COVID-19 crisis, this respite can give your retirement portfolio another year to recover.

"Charitable IRA" Rules Unchanged

The minimum age for making a qualified charitable distribution (QCD) from your IRA - the so-called "charitable IRA Rollover" - is still 70½, and the annual limit is still $100,000. The QCD is still available for 2020 even though RMDs have been suspended. Or you can take distributions from your IRA and make deductible gifts in 2020, with no AGI limitation.

Please contact your financial advisor for further details.

The CARES Act is not rocket science, but it is an 335-page bill, and we are not qualified to give legal or financial advice. Contact your professional advisors if you are considering a sizeable gift.